Transaction cost theory also suggests the use of appropriate incentive schemes and enforcement mechanisms to provide deterrence to opportunistic behavior.
One such example is the use of performance measurement criteria. We separate these criteria to include those that are determined by the firm at the 3PL selections stage from those criteria that are used to monitor the performance of 3PLs after their initial selection. From a process perspective, for transactions or business processes that favor external market mechanisms such as the use of outsourced 3PLs, selection criteria need to be thought through up front and used consistently. A similar prerogative is necessary for ongoing assessment of transactions and/or business processes to ensure revisiting of past decisions in favor of either internal or external governance mechanisms. Thus, we propose the following hypotheses: